Russia to suspend income tax on tourism businesses in Far East

Suspension will last five years but analysts note qualifying for the tax break is not that simple

Russia will suspend income taxes on tourism business in the Far East for five years from 2018, but analysts note that the move comes with restrictions that mean only a small number of companies stand to benefit.

The central government has yet to release a detailed list of activities that would qualify under the new law, though it’s expected that hotels will among the first on the list.

“Setting the income tax rate at zero for five years is a direct support by the government toward investments into and development of the tourism and recreation sphere in the Far East,” Irina Yarovaya, deputy chairman of the state Duma assembly, said to the media.

However, the tax break only applies to organizations that work exclusively in the Far Eastern region, with no branches or representative offices in other parts of the country.

This rules out major international and domestic tour operators and tourism networks.

Russia’s Far East region. Wikipedia commons.

Other restrictions state a beneficiary must get 90% of earnings from tourism and the company must own a building in which there is a hotel.

Analysts point out that smaller hotels and hostels tend to rent their premises.

What’s more, the tax break applies only to businesses that report their earnings in the accounting system that spells out income tax dues, while many tourism businesses use a different simplified scheme to pay tax on what is termed as “temporary or seasonal income.”

“Those special conditions will seriously limit which tourist companies, which are mostly small businesses, will be able to get the break. Almost 80 percent of companies likely won’t qualify,” Roman Ivanischev, the president of the Far East Association of Restaurateurs and Hoteliers, told Asia Times.

In the most popular region of Primorsky Krai, where Vladivostok is located, only a handful of hotels report their accounts in the form that breaks out income tax or which have no branches in other Russian regions, said Ivanischev.

Meantime, the biggest barrier to development of tourism in the Far East remains the high cost of air fare.

The government is currently considering what means it can take to subsidize air travel, as visits to such regions as Anadyr, Yakutsk, or Kamchatska is only possible by air.

September prices for a return journey in economy class between Moscow and Vladivostok are around $370 per person.

A return trip between the Russian capital and Petropavlovsk-Kamchatsky, the main city in the Kamchatka region, is priced at around $570; to Yakutsk in the Sakha Republic, the cost is $527; to Anadyr in the Chukotka Autonomous Okrug, the price is $1,109.

Return tickets from Seoul to Vladivostok are $334; to Petropavlovsk-Kamchatsky — $500 with long layover times; to Yakutsk — $600; while Anadyr can only be reached via a trip to Moscow, which would add up to two connections and a $2,572 price.

Still, tourism numbers to the Russian Far East for last year are up 35% on the previous year, mainly due to domestic visitors. The biggest draw for tourists is the Primorsky Krai, which gets 80% of all visitors to the region.